Wednesday, April 26, 2017

IKEA’s Value Proposition

IKEA’s Value Proposition

IKEA is one of the most successful retailers in the world with operations in 43 countries and growing at 6% annually. From humble beginnings, IKEA now has more than 150,00 employees and has been ranked among Forbes Top 50 World's Most Valuable Brands.[1]  Undoubtedly, it is IKEA's forward-thinking strategy that has helped to transform itself into a furniture behemoth.

IKEA’s success in the long run can be attributed to its development of efficient and well planned global network from manufacturing to distribution. IKEA’s business strategy is “to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”.[2] IKEA’s business strategy not only provides it a competitive advantage, but also a clear vision of what it wants to achieve, guided by its strong values.  Here are a few of IKEA’s value proposition that has helped it to become a market leader:

1.     Pricing

IKEA’s products are neither too cheap nor too expensive. They are priced perfectly. The consumers are extremely satisfied with the value for the price they pay. Price is the one which stands out among other attributes of IKEA which include quality, sustainability, and functionality. IKEA is able to sustain such low prices because they start the product development with a target price point. [3]

2.     Stores are a destination.

While many retailers in the furniture industry are shutting physical stores and moving into digital sphere, IKEA is expanding and growing in both the spheres.  IKEA strongly believes that in-store experience can’t be subsisted by virtual reality as stores enable customers to have a “three-dimensional” feel of the products. To enhance the in-store experience, IKEA provides great ambience in its showroom as well as wide range of options in its cafeteria. [4]

3.     Home visits

It is very crucial for IKEA to understand what people want at their homes to fulfil its goal of being "the leader of life at home." Hence an arm of IKEA’s management visit their customer’s home frequently. During the visit, they observe, ask the customer’s their needs and take pictures. This information is compiled in their quarterly “Life at Home” report which help them understand the trend. To complement this, IKEA uses predictive analytics and data-mining to forecast the customer needs. [5]

4.     Sustainability

IKEA obtains its wood from 21 forests and ensure that all the wood is obtained as per the company’s sustainable forestry standards. IKEA uses more than 30% of the wood from sustainable sources for its products.[6] The company has set goals to increase the use from sustainable sources to 50% by 2017. And by 2020, the company aims to become completely self-sufficient- produce as much energy as it consumes. The company has been working towards this and operates 137 wind turbines and 550,000 solar panels on its buildings globally. [7] There are many initiatives taken by IKEA to promote the concept of “sustainable lives at homes” of its customers by providing them with innovative products that use less energy, save & recycle water and reduce waste.

5.     Staff

Staff occupy the central position in IKEA’s strategy.  They aim at having women in half of all management levels across business to foster diversity and equality. Unlike other retailers, IKEA offers its staff with 3 months of paid leave during maternity. Lars Peterson, IKEA’s US head, believes that this strategy is good investment for them in the future that will ensure low turnover. IKEA strongly encourages its staff to actively participate in community activities in their region of operation. The charitable wing of IKEA- The IKEA foundation- donates millions of euros from its profit to support programs organized by UNICEF and Save the Child.[8]

6.     Emphasis on design

IKEA strongly promotes the design of products rather than the designer for they believe that it is the product that would meet the needs of the customer and not the designer.  IKEA has over 9500 products and launches about 2,00 products annually thanks to its 12 in-house designers and 60-70 on-contract external designers. [9]

7. Demographic

For students and non-working class, IKEA has been a destination for the quality and range of furniture products at reasonable price. IKEA has managed to attract the youth with their clean, easy to assemble and quality products. [10]

[1] "IKEA Facts and Figures - IKEA." IKEA Highlights 2016. N.p., n.d. Web. 26 Apr. 2017.
[2] Feb 16 2014 at 4:53 PM, and 1. Hr Ago. "Power of IKEA's 25-word Strategy Statement." Financial Review. N.p., 20 Feb. 2014. Web. 26 Apr. 2017.
[3] Skobaya, /. "Secret behind IKEA's Pricing Strategy." T1 2016 MPK732 Marketing Management (Cluster B). N.p., 15 May 2016. Web. 26 Apr. 2017.
[4] "How Ikea Uses Food to Trick You into Buying Furniture." New York Post. N.p., 03 June 2015. Web. 26 Apr. 2017.
[5] "IKEA Makes Home Visits – RetailWire." RetailWire. N.p., n.d. Web. 26 Apr. 2017.
[6] Schutte, Shané. "IKEA Becomes First Company to Have Its Very Own Forest." Real Business. N.p., 25 Aug. 2016. Web. 26 Apr. 2017.
[7] Bowden, George. "Ikea Has Some Very Surprising Uses For Its Recycled Material." The Huffington Post. The Huffington Post, 17 Jan. 2017. Web. 26 Apr. 2017.
[8] "Over 12 Million Children Have Better Educational Opportunities through IKEA Foundation, Save the Children and UNICEF Partnership." IKEA Foundation. Https://, n.d. Web. 26 Apr. 2017.
[9] "The IKEA Products Professional Designers Use." Fox News. FOX News Network, n.d. Web. 26 Apr. 2017.
[10] Wollen, Todd. "IKEA Named One of Canada's Top Employers for Young People for the Second Consecutive Year - IKEA." IKEA CA/EN. N.p., n.d. Web. 26 Apr. 2017.

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